Highlights
In July, the consumer made a nice comeback in terms of income growth and spending. PCE inflation, however, was on the warm side. Personal income in July rose a moderately healthy 0.3 percent after rising 0.2 percent in June. The July advance matched the consensus for a 0.3 percent increase. Wages & salaries grew a little more robust 0.4 percent, following a bump up of 0.1 percent the month before.

Consumer spending rebounded a sharp 0.8 percent after slipping 0.1 percent in June. The latest number came in significantly higher than expectations for a 0.4 percent boost. By components, durables jumped 1.9 percent after declining 1.1 percent in June. Clearly, motor vehicle sales are up as the supply constraint related parts shortages from Japan is easing. Nondurables increased 0.7 percent, following a 0.5 percent decrease in June. Services rose 0.7 percent after nudging up 0.1 percent in June. The latest numbers on spending should allay concern about a double-dip recession.

On the inflation front, the headline PCE price index jumped 0.4 percent, following a 0.1 percent decrease in June. The primary reason was energy costs with food also contributing. The core rate posted a 0.2 percent gain, matching the June pace and equaling expectations.

Year-on-year, headline prices are up 2.8 percent, compared to 2.6 percent in June. The core is up 1.6 percent on a year-ago basis, firming from the 1.4 percent pace in June.

Inflation and taxes did outpace income with real disposable income edging down 0.1 percent after a 0.3 percent boost in June. However, spending clearly beat inflation as real PCEs advance a sharp 0.5 percent in July, following no change the prior month.

On the news, equity futures rose, focusing on healthy spending. The bottom line is that the consumer sector is not down and out but actually adding to economic growth. Of course, the strength is coming from those with jobs and job growth would add to momentum.

Recent History Of This Indicator
Personal income in June edged up a modest 0.1 percent, easing from a 0.2 percent rise in May. Wages & salaries were unchanged, following a gain of 0.2 percent the prior month. Weighed down by modest job growth, a decline in motor vehicle sales, and a decrease in gasoline prices, consumer spending declined 0.2 percent after posting a 0.1 percent uptick in May. On a more favorable note, real disposable personal income increased 0.3 percent in June, compared to no change in May as inflation was negative and taxes dipped in the latest month. On the inflation front, the headline PCE price index declined 0.2 percent on lower energy costs, after increasing 0.2 percent the month before. The core rate rose but eased to 0.1 percent from 0.2 percent in May. Looking ahead, a 0.6 percent jump in aggregate weekly earnings in July suggests a strong gain in the private wages & salaries component of personal income. PCE price inflation is likely to be hot as the headline CPI for July jumped 0.5 percent. The CPI core rose a more moderate 0.2 percent.

Definition
Personal income is the dollar value of income received from all sources by individuals. Personal outlays include consumer purchases of durable and nondurable goods, and services.
Why Investors Care

Changes in taxes or social security cost of living adjustments can cause some sharp variations in monthly disposable income growth. However, on the whole, monthly changes in disposable income fluctuate less than monthly changes in personal consumption expenditures.Data Source: Haver Analytics

Monthly changes in personal consumption expenditures are usually skewed by large changes in spending on durable goods. Spending on nondurable goods and services tend to be less volatile from one month to the next.Data Source: Haver Analytics